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House of Lords
Session 2002-03
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European Union Committee Publications

European Union - Thirteenth Report

Here you can browse the report which was ordered by the House of Lords to be printed 11 March 2003.


CONTENTS

REPORT

PART 1:EXECUTIVE SUMMARY

PART 2: INTRODUCTION

What is the Stability and Growth Pact?

The EC Treaty and Excessive Deficits

The legal elements of the Stability and Growth Pact

The Amsterdam Resolution

Regulation on surveillance and co-ordination

Regulation on the excessive deficit procedure

Non-legal elements surrounding the Stability and Growth Pact

Code of Conduct

The target date for achieving a balanced budget

Summary

Why do we need a Pact?

1. Economies in the EU are a matter of common interest

2.The free-rider problem

3.The default problem

4.The economic consquences of demographic changes in the EU

Why not leave it to market discipline to ensure the sustainability of public finances?

Problems affecting the operation of the SGP

The global economic slowdown

The increasing financial impact of ageing populations in the EU

The Council did not send 'early warnings' to Germany or Portugal

Member States are breaking the rules of the SGP

An excessive deficit in Portugal

An excessive deficit in Germany

A risk of an excessive deficit in France

Member States with debt above the 60 % reference value

Who is to blame?

The problems are the result of Member States' budgetary actions

The problems are with rules of the SGP

PART 3:CRITICISMS OF THE STABILITY AND GROWTH PACT

Criticism 1: The SGP does not take account of underlying economic conditions

The Commission's proposal

Should the excessive deficit criterion be recast in cyclically-adjusted terms?

Problems with cyclical measurements

Criticism 2: Too many countries have underlying budget balances that exceed the 'close to balance or in surplus' requirement

Criticism 3: The SGP does not function symmetrically across the cycle

Criticism 4: The SGP restricts Growth.

Criticism 5: The SGP does not put enough emphasis on debt and the sustainability of public finances.

Criticism 6: The SGP's rigid rules do not allow for differences between countries.

PART 4: SURVEILLANCE AND ENFORCEMENT

Surveillance-the early-warning mechanism

Criticism: The procedures do not work because the institutional balance is too complicated

Background

The Commission's proposal

Evidence

The Committee's Conclusions on surveillance

Enforcement

Are fines an appropriate sanction for the SGP?

Fines are perverse-they will only worsen the budgetary situation

Fines will never be imposed-they are not politically credible

Reasons to maintain the possible sanction of fines

Are there any other possible sanctions for the SGP?

The role and importance of Peer Pressure

Would it be better to have 'soft' guidelines rather than 'hard' rules?

The Committee's Conclusions on enforcement

PART 5: SUMMARY OF KEY CONCLUSIONS

The need for a Stability and Growth Pact

Proposals to reform the interpretation of the SGP

Surveillance over the SGP

Enforcement of the SGP

Overall General Conclusion

Recommendation

Appendix 1: Sub-Committee A (Economic and Financial Affairs,Trade and External Relations)

Appendix 2: List of Witnesses

Appendix 3: Glossary

Box 1 Economic and Monetary Union (EMU)

Box 2 The Stability and Growth Pact and the United Kingdom

Box 3 The EC Treaty

Box 4 Automatic Stabilisers

Box 5 Accession Countries

Box 6 The Early-Warning Mechanism: Regulation (EC) No 1466/97

ORAL EVIDENCE

Professor Willem Buiter

Oral Evidence, 10 December 2002

Professor Patrick Minford, Professor of Applied Economics, Cardiff

Business School

Mr David Walton, Chief European Economist, Goldman Sachs

Mr Martin Weale CBE, Director, National Institute of

Economic & Social Research

Oral Evidence, 17 December 2002  10

Professor Iain Begg, Visiting Professor at the European Institute,

London School of Economics and Political Science

Written Evidence

Oral Evidence, 14 January 2003

Mr Clive Crook, Deputy Editor, the Economist

Oral Evidence, 21 January 2003

Ruth Kelly MP, Financial Secretary to HM Treasury

Mr Robert Woods, Head of Fiscal and Macroeconomic Policy, HM Treasury

Mr Dave Ramsden, Head of Economic Monetary Union Policy, HM Treasury

Written Evidence

Oral Evidence, 28 January 2003

Mr John Monks, General Secretary, Trades Union Congress

Mr Tom Jenkins, Head of European Union & International

Relations, Trades Union Congress

Mr Ian Brinkley, Senior Economist, Trades Union Congress

Mr David Coats, Head of Economic and Social Affairs Department,

Trades Union Congress

Written Evidence

Oral Evidence, 4 February 2003

Mr Fred von Dewall, President, EMU Working Group, Union of Industrial and Employers' Confederations of Europe

Written Evidence

Written Statement

Prepared Answers

Oral Evidence, 4 February 2003

Mr Klaus Regling, Director General of the Directorate-General for Economic &

Financial Affairs, European Commission

Oral Evidence, 6 February 2003

WRITTEN EVIDENCE

Professor Jagjit Chadha, Clare College, Cambridge University

Professor John Fitz Gerald, The Economic and Social Research

Institute, Ireland

Professor Charles Goodhart, London School of Economics

Professor Andrew Hughes-Hallett, Cardiff Business School and the Centre

for Economic and Policy Research

Dr Andrew Scott, Department of Economics, The London Business School

Professor Anne Sibert, Department of Economics, Birkbeck College,

University of London

Dr Wolfgang Zank, Associate Professor, Aalborg University, Denmark

NOTE: Pages of the Report and Appendices are numbered in bold type; pages of evidence are numbered in ordinary type. References in the text of the Report are as follows:

  (Q)  refers to a question in oral evidence;

  (p)  refers to a page of evidence.


 
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